Kloppers condemns “split the pizza” politics as anti-investment

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Marius Kloppers, director, FLSmidth

FORMER BHP Billiton CEO, Marius Kloppers, has called on governments to lower sovereign risk rather than playing “split the pizza” politics – an approach that will dissuade the best mining companies from their shores.

Speaking via recorded video message at the Joburg Indaba gala dinner, where he was inducted into the Joburg Indaba’s Hall of Fame, Kloppers said governments believe their main task was to “… argue over levies and taxes” and perceive value to be a “zero sum game”.

“This is plain wrong,” he said.

Kloppers was CEO of BHP Billiton between 2007 and 2013, a period that took in part of the super-cycle before the global financial crisis which was followed by a heavy metals and minerals price correction. During that period, so-called ‘resource nationalism’ took off, especially among African governments, but also in Australia where BHP Billiton (now BHP) is headquartered.

The aim of resource nationalism was to extract a larger slice of value from the mining sector that went beyond windfall taxes.

Today, there has been a resurgence in governments attempting to extract as much fees and levies as possible. Tanzania and South Africa have either enacted or proposed new laws that change the form and substance of investment regulations.

“So how then do governments get the best mining companies and the best outcomes?,” said Kloppers. “They get them by lowering sovereign risk. Lowering sovereign risk is best accomplished by having the, most stable, non-changing investment conditions, non-punitive ownership and taxation hurdles, with non-corruptible and well-functioning institutions.

“There are some governments that, regrettably, instead perceive value to be a zero-sum game. They see their main task as being there to argue about changes and taxes. They are plain wrong.

“The job of governments, as they search for value, is not to play “split the pizza” politics, but to make themselves more attractive investment destinations. Increasing the size of the pie, instead of arguing about splitting the pie.

“Value is not a zero-sum game. The public and private sectors have shared interest when profit and socio-economic benefits meet. We need to recognize that a broad view of value is required; one which considers the full range of impacts – both direct and indirect impacts. We need to create a platform for partnership that can last beyond an election cycle.”

Kloppers is now a non-executive director of Danish company, FLSmidth which supplies engineering services and materials to the world’s mining sector.


 

Marius Kloppers speech to the Joburg Indaba

I am deeply honored to be recording this video – my apologies at not being there in person today.

I read earlier this week in the newspaper that there is a psychological condition called the “imposter syndrome”. People feel that they will be exposed, as being not worthy of an honor. This is the feeling that I have today when I look at the list of past recipients and their accomplishments. Again – thank you – I am very humbled.

I was asked to record a message, and thought that I would take a trip down memory lane.

Following the collapse of the CIS at the start of the 1990s, with prices at all-time lows, the mining industry realized that it was not loved by its communities. Public perception was that its health, safety and environmental records were poor, its human resource practices antiquated, and overall impact on the communities and countries not valuable.

It was a wake-up call, and in the years that followed, the industry worked very hard to change these perceptions and realities. Industry bodies like the International Council on Mining and Metals to name but one of many, helped to disseminate the vision, the message, and best practices.

The results of this work, conducted over years, were dramatic. It is best illustrated by the reaction of the various publics of the mining community during the events of the mining boom in the early 2000s. Then, many countries, notably Australia, but also others, keenly, sometimes aggressively, examined if they were benefitting, and the baseline demeanor was for change.

The real test for the mining industry on its efforts was suddenly at hand. It called on its communities and stakeholders to voice their opinions. These stakeholders were unequivocal that the hard work that the miners had put in, had paid results. Governments were forced to listen to the community, and as a result backed off the proposals for change. The mining community was given the stability in investment conditions to continue to invest, and create value for all its stakeholders.

Today, however, we seem to be back at the debates of the early 1990s with the mining industry mostly depicted in negative terms in the press and media.

Good mining companies, create unique, encompassing, value in their communities. Profits are immensely important to investors, and the tax on profits similarly to governments; however, to the communities that they operate in, mining companies deliver far, far more.

Profits are really only what is left over for the investor: after jobs have been created, training done, community infrastructure established, industrial nodes incubated, workers, suppliers and contractors paid, and they in turn having paid their own taxes. Yet the current public debate is almost always about royalties and taxes, and not about overall benefits.

The job of the mining companies, like in the 1990s, is to communicate and demonstrate the total value they create.

So how then do governments get the best mining companies and the best outcomes? They get them by lowering sovereign risk. Lowering sovereign risk is best accomplished by having the, most stable, non-changing investment conditions, non-punitive ownership and taxation hurdles, with non-corruptible and well-functioning institutions.

Lowering sovereign risk lowers the return hurdles for investors, broadens the investor group, increases competition for investment, and thus creates better outcomes for countries and communities.

There are some governments that, regrettably, instead perceive value to be a zero-sum game. They see their main task as being there to argue about changes and taxes. They are plain wrong. The job of governments, as they search for value, is not to play “split the pizza” politics, but to make themselves more attractive investment destinations. Increasing the size of the pie, instead of arguing about splitting the pie.

Value is not a zero-sum game. The public and private sectors have shared interest when profit and socio-economic benefits meet. We need to recognize that a broad view of value is required; one which considers the full range of impacts – both direct and indirect impacts. We need to create a platform for partnership that can last beyond an election cycle.

Only by both governments and companies working together can superior outcomes be generated.

Many thanks

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